Shareholder Disputes – FAQs

FAQs

The rights conferred upon a shareholder can vary widely and are commonly found in the company’s articles of association and/or shareholder’s agreement. The rights of a shareholder can depend on the class of share held and can be varied to amend, amongst other things, voting rights and entitlement to dividends.

The duties of a director can be found in the company’s articles or the director’s employment contract. Directors also have statutory fiduciary duties, which include the duty:

  • to act for proper purposes
  • to avoid conflicts of interest
  • to act in good faith in the best interest of the company
  • to exercise reasonable care, skill and diligence in his/her role

If a company is being run in a way which is unfairly prejudicial to the interests of the members generally, a shareholder may be able to bring legal action against the wrongdoers under the Companies Act 2006.

A director may be removed by a resolution being passed at a general meeting of the shareholders. Such a vote requires more than 50 per cent of the shareholders to vote in favour of the resolution.

It should be noted though that there are strict procedural requirements to call a general meeting and to remove a director, so it is advised that legal advice is obtained before an attempt is made to remove a director.

Common grounds which may lead to a minority shareholder issuing an unfair prejudice petition under section 994 of the Companies Act 2006 include majority shareholders awarding themselves unreasonable financial benefits or diverting business away from the company to another business which a majority shareholder is also a shareholder of.

A shareholder who wishes to bring a claim against another shareholder should first check the constitutional documents of the company, as this may set out the method for resolving disputes. If the constitutional documents are silent on dispute resolution, then mediation is frequently used as an alternative to issuing a court claim.

However, it should be noted that meditation is not legally binding without agreement. Other forms of dispute resolution include expert determination and arbitration. If you would like to discuss which alternative method might be suitable for you, then please contact us.

If you believe you are a shareholder of a company but are not recognised as one, then proceedings can be issued against the company to rectify this and have your name entered in the Register of Members. If you are successful, the court may also order the company to pay damages to you.